AMM Arbitrage

Capture arbitrage opportunities between AMM pools and centralized exchanges

Overview

AMM Arbitrage exploits price differences between Automated Market Maker (AMM) decentralized exchanges and centralized order book exchanges. The strategy simultaneously executes trades on both venues when profitable opportunities arise.

How It Works

1. Monitor Prices: Continuously compares prices between AMM and CEX
2. Calculate Profitability: Accounts for slippage, gas costs, and fees
3. Execute Arbitrage: Simultaneously buys low on one venue and sells high on the other
4. Profit from Spread: Captures the price difference minus all transaction costs

# From source: hummingbot/strategy/amm_arb/amm_arb.py
buy_price_adjusted = buy_price * (1 + slippage_buffer)
sell_price_adjusted = sell_price * (1 - slippage_buffer)
profit_pct = (sell_price_adjusted - buy_price_adjusted) / buy_price_adjusted

if profit_pct >= min_profitability:
    execute_arbitrage()

When to Use

Ideal Scenarios

• High volume AMM pools with price inefficiencies
• Low gas cost networks (BSC, Polygon, Arbitrum)
• Volatile markets with frequent mispricings
• Sufficient capital to absorb gas costs

Avoid When

• Ethereum mainnet with high gas (>100 gwei)
• Low liquidity AMM pools
• Pairs with high price impact
• Insufficient capital for gas costs

Core Configuration Parameters

Connector Setup

connector_1 · string · required

First exchange connector (CEX, AMM, or CLOB)

Examples: binance, uniswap_polygon, pancakeswap

market_1 · string · required

Trading pair on first connector in BASE-QUOTE format

Example: ETH-USDT

connector_2 · string · required

Second exchange connector

Example: uniswap_ethereum, quickswap

market_2 · string · required

Trading pair on second connector

Example: WETH-USDC

Arbitrage Parameters

order_amount · decimal · required

Order size in base asset

Example: 0.1 for 0.1 ETH per arbitrage

Consider slippage impact. Larger orders may have worse execution prices on AMMs.

min_profitability · decimal · default: "1.0"

Minimum profit percentage required to execute arbitrage. Enter 1 for 1%.

Example: 0.5 requires 0.5% profit after all costs

Recommended:

• Ethereum mainnet: >= 2%
• L2 networks: >= 0.5%
• BSC/Polygon: >= 0.3%

Slippage Management

market_1_slippage_buffer · decimal · required

Slippage buffer for connector_1 orders. Enter 1 for 1%.

Default: 1.0 for AMMs, 0 for CEX

Example: 2.0 adds 2% buffer to price for slippage

market_2_slippage_buffer · decimal · required

Slippage buffer for connector_2 orders. Enter 1 for 1%.

Automatically defaults to 1% for AMMs, 0% for CEX.

Execution Mode

concurrent_orders_submission · bool · default: "false"

Whether to submit both orders simultaneously or sequentially

Options:

• true: Submit both orders at once (faster but riskier)
• false: Wait for first order to fill before submitting second (safer)

Sequential execution reduces risk but may miss opportunities if price moves.

Asset Conversion

rate_oracle_enabled · bool · default: "true"

Use Hummingbot’s rate oracle for asset conversion

Recommended for most use cases.

quote_conversion_rate · decimal · default: "1.0"

Fixed conversion rate between quote assets (when rate_oracle_enabled=false)

Example: 1.0 if both use USDT, or 0.9998 for USDT to USDC

Gas Configuration (for AMMs)

gas_token · string · default: "ETH"

Symbol of token used to pay gas fees

Examples: ETH, MATIC, BNB

gas_price · decimal · default: "2000"

Estimated gas cost in quote asset

Example: 50 for $50 in gas per arbitrage

This is factored into profitability calculations. Update based on network conditions.

Example Configurations

CEX to AMM on L2

strategy: amm_arb
connector_1: binance
market_1: ETH-USDT
connector_2: uniswap_polygon
market_2: WETH-USDC
order_amount: 0.5
min_profitability: 0.3
market_1_slippage_buffer: 0
market_2_slippage_buffer: 1.5
concurrent_orders_submission: true
rate_oracle_enabled: true

This configuration:

• Arbitrages between Binance and Uniswap on Polygon
• Uses 0.5 ETH per trade
• Requires 0.3% minimum profit
• Submits orders concurrently for speed
• Low gas costs on Polygon enable smaller spreads

AMM to AMM on Same Chain

strategy: amm_arb
connector_1: uniswap_ethereum
market_1: WETH-USDC
connector_2: sushiswap_ethereum
market_2: WETH-USDC
order_amount: 1.0
min_profitability: 2.0
market_1_slippage_buffer: 2.0
market_2_slippage_buffer: 2.0
concurrent_orders_submission: true
rate_oracle_enabled: true
gas_token: ETH
gas_price: 100

Key considerations:

• Higher min_profitability for Ethereum gas costs
• Higher gas_price estimate for accurate profit calculation
• Concurrent submission critical for speed

BSC Pancakeswap to Binance

strategy: amm_arb
connector_1: pancakeswap
market_1: BNB-BUSD
connector_2: binance
market_2: BNB-USDT
order_amount: 5.0
min_profitability: 0.5
market_1_slippage_buffer: 1.0
market_2_slippage_buffer: 0.2
concurrent_orders_submission: false
rate_oracle_enabled: false
quote_conversion_rate: 1.0
gas_token: BNB
gas_price: 2

Optimized for BSC:

• Lower gas costs allow tighter spreads
• Fixed conversion rate for stablecoins
• Sequential orders for better control

Strategy Logic Deep Dive

Profitability Calculation

The strategy performs comprehensive profitability analysis:

# Simplified from source code
def calculate_arbitrage_profitability():
    # Get prices with slippage
    buy_price = get_price(connector_1) * (1 + slippage_buffer_1)
    sell_price = get_price(connector_2) * (1 - slippage_buffer_2)
    
    # Calculate raw profit
    gross_profit = (sell_price - buy_price) * order_amount
    
    # Subtract costs
    trading_fees = (buy_price * fee_1 + sell_price * fee_2) * order_amount
    gas_cost = gas_price if is_gateway else 0
    
    net_profit = gross_profit - trading_fees - gas_cost
    profit_pct = (net_profit / (buy_price * order_amount)) * 100
    
    return profit_pct >= min_profitability

Order Execution Modes

Concurrent Execution

concurrent_orders_submission: true

Flow:

1. Submit order to connector_1
2. Immediately submit order to connector_2
3. Wait for both to fill

Pros:

• Faster execution
• Less price risk

Cons:

• Both orders may partially fill
• Higher failure risk

Sequential Execution

concurrent_orders_submission: false

Flow:

1. Submit order to connector_1
2. Wait for complete fill
3. Submit order to connector_2
4. Wait for complete fill

Pros:

• Guaranteed full fills
• Better inventory control

Cons:

• Slower (may miss opportunity)
• Higher price movement risk

Gas Cost Optimization

Use L2 Networks

Deploy on Polygon, Arbitrum, or Optimism for 100-1000x lower gas costs:

connector_2: uniswap_polygon  # vs uniswap_ethereum
min_profitability: 0.3        # vs 2.0+ on mainnet

Batch Transactions

Some AMMs support batching. Check connector documentation for batching capabilities to reduce gas per trade.

Monitor Gas Prices

Update gas_price parameter based on current network conditions:

# Check current gas price
config gas_price 150  # Adjust based on network

Increase Order Size

Gas cost per trade is fixed, so larger orders improve percentage returns:

• 0.1 ETH @ $50 gas = 1$5000
• 1.0 ETH @ $50 gas = 0.1% cost

Tips for Success

Start Conservative

Begin with higher min_profitability (2-3%) and lower order_amount to test the strategy safely.

Monitor Price Impact

Large orders on low-liquidity AMMs suffer from price impact. Check pool liquidity:

# Order should be < 1% of pool liquidity
order_amount < pool_liquidity * 0.01

Account for Failed Transactions

AMM transactions can fail due to slippage. Increase slippage_buffer if experiencing failures:

• Start: 1-2%
• If failures: increase to 3-5%

Balance Both Connectors

Maintain sufficient balances on both sides:

• Quote asset on buy side
• Base asset on sell side
• Gas token for AMM transactions

Risk Management

Primary Risks:

• Gas Cost Risk: Transaction fees exceed profits
• Slippage Risk: Actual execution worse than estimated
• MEV Risk: Front-running bots steal opportunity
• Inventory Risk: Imbalanced positions across exchanges

Risk Mitigation:

1. Gas Management: Use L2s or increase min_profitability for L1
2. Slippage Protection: Set conservative slippage_buffer values
3. MEV Protection: Use private RPCs or MEV-protection services
4. Inventory Control: Regular rebalancing between exchanges

Performance Optimization

Network Selection

Network	Avg Gas Cost	Recommended min_profitability
Ethereum Mainnet	$50-200	2-5%
Polygon	$0.01-0.10	0.3-0.5%
Arbitrum	$0.10-1.00	0.5-1.0%
BSC	$0.10-0.50	0.3-0.8%

Order Size Guidelines

# Calculate minimum order size for profitability:
min_order_value = gas_cost / (min_profitability / 100)

# Example: $50 gas, 2% profit target
min_order_value = 50 / 0.02 = $2,500

Source Code Reference

Configuration: /source/hummingbot/strategy/amm_arb/amm_arb_config_map.py:55

Strategy Implementation: /source/hummingbot/strategy/amm_arb/amm_arb.py

Utils: /source/hummingbot/strategy/amm_arb/utils.py

Related Strategies

• Cross Exchange Market Making: Market making with hedging
• Spot Perpetual Arbitrage: Funding rate arbitrage